Apart from being divided (supposedly) by a common language, the laws of the UK and the US take a different approach to the recharacterisation of contracts. In particular, it is said that the UK takes a formal approach, while the US adopts the functional approach. Typically, the question arises when the true character of a financing agreement falls to be determined: assuming it matters, is the transaction one which creates an absolute interest (e.g. by way of sale) or one which is less than absolute (e.g. a security interest)? But what does it mean to adopt a functional, as opposed to a formal, approach in this context?
This article first appeared in South Square Digest, October 2018, and is republished with the permission of South Square.